Occupancy at Swire’s Pacific Place was 95% at the end of last year
Swire Properties reported an attributable loss of HK$766 million ($98.5 million) for 2024, reversing a year-earlier profit of HK$2.6 billion, as the Hong Kong-based builder’s hometown office portfolio drove markdowns on investment properties for a second year in a row.
The Hong Kong office market “remained difficult” last year as weak demand, high vacancy rates and new supply pressured rents, the real estate arm of centuries-old trade group Swire Pacific said Thursday in a stock filing.
Swire recorded a fair value loss on its investment properties of HK$6.3 billion in 2024, widening from HK$4.4 billion in 2023, with the shortfalls arising mainly from its Hong Kong office portfolio in both years, according to the results. Underlying profit, which adjusts for changes in fair value of investment properties, fell 42 percent to HK$6.8 billion in the absence of large divestments like the previous year’s sale of nine floors at One Island East in Taikoo Place.
Despite what he termed “subdued” office market conditions in Hong Kong, Swire Properties chairman Guy Bradley said a flight-to-quality trend had led prospective tenants to favour the developer’s new offerings like One and Two Taikoo Place and Six Pacific Place.
“Pacific Place continues to attract top-tier tenants despite the challenging operating climate,” Bradley said.
On the Defensive
Occupancy at the flagship Pacific Place complex in Admiralty stood at 95 percent at the end of December, down from 98 percent a year earlier, as rent from new leasing deals, including renewals, tumbled 16 percent for the year, according to Swire.
Swire Properties chairman Guy Bradley
Gross rental income from the group’s Hong Kong office portfolio fell 7 percent to HK$5.1 billion, or 4 percent if disregarding revenue lost from the disposal of the One Island East floors.
Swire’s two newest Hong Kong buildings, Two Taikoo Place and Six Pacific Place (formerly 46-56 Queen’s Road East), were 69 percent and 53 percent leased, respectively. Excluding the pair, the rest of the office portfolio was 93 percent leased.
Swire obtained the occupation permit for Six Pacific Place, with 223,000 square feet (20,717 square metres) of gross floor area, in February of last year. Handover of office floors to tenants is now in progress, the company said.
With JLL reporting a citywide Grade A vacancy rate of more than 13 percent at the end of 2024, Bradley sought to depict Swire’s resilient occupancy as “a very good defensive position” at a time of weak demand and strong supply.
“I think this position reflects what we like to call the flight to quality, where in times like this tenants look for higher-quality buildings in higher-quality locations, and both Pacific Place and Taikoo Place represent just that,” the chairman told analysts on an earnings call.
Oversupply Woes
JLL said Hong Kong’s office leasing sentiment improved towards the end of 2024 as tenants took up 377,100 square feet more than they gave back during the fourth quarter.
Overall rents, however, were down 1.9 percent from the previous quarter, dropping 1.9 percent in Central and 2.8 percent in both Hong Kong East and Kowloon East, according to the consultancy’s Office Market Dynamics report.
Citing a surplus of unused office space in recent years and ample supply ahead, the Hong Kong government last month halted commercial land sales for the coming financial year. Financial secretary Paul Chan said officials might also re-designate some commercial sites for residential use and allow greater flexibility of land use.
JLL Hong Kong’s head of office leasing advisory, Alex Barnes, pointed to the city’s 14 million square feet of currently vacant Grade A office space, with an additional 7.3 million square feet of new supply expected by 2029, as likely to increase upward pressure on vacancies.
“The government’s decision to halt the sale of commercial sites will allow more time for the market to absorb new supply and for economic conditions to improve,” Barnes said.
